BIOQUEST CORP. - FORM 10-Q - December 20, 2011

Attached files

file	filename
EX-32 - BIOQUEST CORP.	ex32.htm
EX-31.1 - BIOQUEST CORP.	ex31-1.htm
EX-31.2 - BIOQUEST CORP.	ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended October 31, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ______________ to _____________

Commission file number: 000-49993

FORCE FUELS, INC.

(Exact name of registrant as specified in its charter)

Nevada		56-2284320
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)

1503 South Coast Drive, Ste. 206
Costa Mesa, CA		92626
(Address of principal executive offices)		(Zip Code)

(949) 783-6723

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o Not applicable.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Small reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes þ No o

As of December 15, 2011, there were 13,544,375 shares of the issuer’s common stock outstanding.

FORCE FUELS, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of October 31, 2011 (Unaudited) and July 31, 2011	3

	Condensed Consolidated Statements of Operations for the Three Months Ended
	October 31, 2011 and October 31, 2010 (Unaudited)	4

	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three Months Ended
	October 31, 2011 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended
	October 31, 2011 and October 31, 2010 (Unaudited)	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3	Quantitative and Qualitative Disclosures about Market Risk	15

Item 4	Controls and Procedures	15

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	17

Item 1A	Risk Factors	17

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3	Defaults upon Senior Securities	17

Item 4	(Removed and Reserved)	17

Item 5	Other Information	17

Item 6	Exhibits	18

Signatures	22

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FORCE FUELS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	October 31, 2011			July 31, 2011
	(unaudited)
ASSETS

Current Assets:
Cash	$	6,392		$	2,624
Accounts receivable, net		2,009			-
Prepaid expenses		26,205			4,088
Notes receivable, related party		-			2,500
Total current assets		34,606			9,212

Deposits		12,638			12,638
Property, Plant & Equipment
Oil and gas properties (full cost method)		909,671			909,671
Other property, plant and equipment		138,300			138,300
Total property, plant and equipment		1,047,971			1,047,971
Accumulated depletion, depreciation and amortization		(30,056	)		(24,737	)
Total property, plant and equipment, net		1,017,915			1,023,234

Total assets	$	1,065,159		$	1,045,084

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued expenses	$	274,976		$	246,331
Accrued officer salaries		694,809			626,082
Convertible notes payable		105,000			135,300
Convertible notes payable - related party		59,500			29,200
Notes payable - related party		7,200
Notes payable		248,066			248,066
Total current liabilities		1,389,551			1,284,979

Asset retirement obligation		33,700			32,830

COMMITMENTS AND CONTINGENCIES (see Note 7)

STOCKHOLDERS' DEFICIT
Preferred stock, $0.001 par value; 1,000,000 shares authorized;
no issued and outstanding, respectively.		-			-
Common stock, $0.001 par value; 100,000,000 shares authorized;
13,544,375 and 11,704,375 shares outstanding, respectively.		13,544			11,704
Additional paid-in capital		3,636,333			3,517,373
Accumulated deficit		(4,007,969	)		(3,801,802	)
Total Stockholders' Deficit		(358,092	)		(272,725	)
Total Liabilities and Stockholders' Deficit	$	1,065,159		$	1,045,084

See accompanying notes to the condensed consolidated financial statements.

FORCE FUELS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended
	October 31,
	2011			2010

REVENUES
Crude oil	$	7,032		$	32,849

COST OF GOODS SOLD		-			42,579

GROSS PROFIT (LOSS)		7,032			(9,730	)

EXPENSES
Lease operating expense		316			15,394
Salary and wages - officers		103,212			100,832
General and administrative		97,898			187,646
Depletion, depreciation, amortization, and accretion		6,188			4,939
Total expenses		207,614			308,811

NET LOSS FROM OPERATIONS		(200,582	)		(318,541	)

OTHER INCOME (EXPENSE)
Gain (loss) on settlement of debt		-			(225,000	)
Interest expense		(5,585	)		(62,239	)
Total other income (expense)		(5,585	)		(287,239	)

NET LOSS		(206,167	)		(605,780	)

Basic and diluted income (loss) per share, from continuing operations	$	(0.02	)	$	(0.09	)

Weighted average shares outstanding - basic and diluted		12,335,144			6,856,389

See accompanying notes to the condensed consolidated financial statements.

FORCE FUELS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(Unaudited)

											Additional						Total
	Common Stock						Preferred Stock				Paid-in			Accumulated			Stockholders'
	Shares			Amount			Shares		Amount		Capital			Deficit			Deficit

Balance – July 31, 2010		6,475,129		$	6,475			-	$	-	$	2,543,518		$	(3,051,645	)	$	(501,652	)
Common stock issued for services		4,481,746			4,482			-		-		735,002			-			739,484
Common stock issued for extension of notes payable		200,000			200			-		-		23,800			-			24,000
Common stock issued for inducement of loan		60,000			60			-		-		15,540			-			15,600
Common stock issued upon default of note		500,000			500			-		-		224,500			-			225,000
Cancellation of common stock		(12,500	)		(13	)		-		-		(24,987	)		-			(25,000	)
Net loss		-			-			-		-		-			(750,157	)		(750,157	)
Balance – July 31, 2011		11,704,375		$	11,704			-	$	-	$	3,517,373		$	(3,801,802	)	$	(272,725	)
Common stock issued for services		1,840,000		$	1,840			-	$	-		118,960			-			120,800
Net loss		-			-			-		-		-			(206,167	)		(206,167	)
Balance – October 31, 2011		13,544,375		$	13,544			-	$	-	$	3,636,333		$	(4,007,969	)	$	(358,092	)

See accompanying notes to the condensed consolidated financial statements.

FORCE FUELS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Three Months Ended
	October 31,
	2011			2010
Operating activities:
Net loss	$	(206,167	)	$	(605,780	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depletion, depreciation, amortization, and accretion		6,188			4,939
(Gain) loss on settlement of debt		-			225,000
Amortization of discount on debt		-			50,728
Expenses paid on behalf of the Company by a related party		5,558			-
Common stock issued for services and loan inducement		120,800			225,183
Changes in operating assets and liabilities:
Accounts receivable		(2,009	)		7,451
Inventory		-			42,579
Deposits and prepaid expenses		(19,617	)		(77,616	)
Accounts payable and accrued expenses		28,644			(24,056	)
Accrued salaries		68,728			103,093
Net cash provided by (used in) operating activities		2,125			(48,479	)

Investing activities:
Note receivable - related party		-			(23,363	)
Net cash used in financing activities		-			(23,363	)

Financing activities:
Proceeds from related party notes payable		50,660			-
Proceeds from notes payable		-			30,000
Repayment of related party notes payable		(49,017	)		-
Repayment of notes payable		-			(45,000	)
Net cash provided by (used in) financing activities		1,643			(15,000	)

Net increase (decrease) in cash		3,768			(86,842	)

Cash, beginning of period		2,624			86,842

Cash, end of period	$	6,392		$	-

See accompanying notes to the condensed consolidated financial statements.

FORCE FUELS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

Note 1 – Description of the Business and Summary of Significant Accounting Policies

The Company was incorporated as DSE Fishman, Inc. in the State of Nevada on July 15, 2002. On May 14, 2008 DSE Fishman changed its name to Force Fuels, Inc. (“the Company”). At that time the primary focus of the Company became the development and marketing of a proprietary, zero emission hydrogen fuel cell/electric battery hybrid drive system for automotive utilization. In October 2009 the Company retained new management and began the process of exploring the feasibility of acquiring, developing and marketing of green energy products as well as regulated and standardized energy based products, including traditional hydrocarbon based oil and gas and solar and wind energy.

During the period ended October 31, 2011, the Company's principal business was the acquisition and management of oil, gas and alternative energy operations. The Company's common shares are currently quoted on the OTC Pink market of OTC Markets Group, Inc. under the trading symbol “FOFU.” As used in this Report, unless otherwise stated, all references to the “Company”, “we,” “our”, “us” and words of similar import, refer to Force Fuels, Inc.

Going Concern

The Company’s Consolidated Financial Statements included elsewhere in this Report have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to acquire oil and gas properties or obtain necessary financing to continue operations, and the attainment of profitable operations. At October 31, 2011, the Company had a working capital deficit of $1,354,945 and had accumulated losses of $4,007,969. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. The Company’s Consolidated Financial Statements included elsewhere in this Report do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information required to be included in a complete set of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2011 Annual Report filed with the SEC on Form 10-K on November 15, 2011.

Basis of Presentation, Fiscal Year, and Principles of Consolidation

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Force Fuels Services, Inc., Great American Coffee Company, and Cheetah Motor Corp. All intercompany transactions and balances have been eliminated. The Company has elected a fiscal year-end of July 31.

Use of Estimates

The preparation of these consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of October 31, 2011, the Company had a cash balance of $6,392. As of July 31, 2011, the Company had a cash balance of $2,624. As of October 31, 2011 and July 31, 2011, the Company had no cash equivalents.

Property and Equipment, net

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of 7 years. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal. Any resulting gain or loss is reflected in current operations. Expenditures for maintenance and repairs are charged to operations as incurred. The capitalized cost of the oil properties will be amortized based on the units-of-production method. Costs incurred for property acquisition and further development activity will be capitalized and amortized as previously noted.

Financial Instruments and Concentrations

The fair values of financial instruments, which include cash, accounts payable, accrued liabilities, and convertible notes, were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Financial instruments that potentially subject the Company to credit risk consist principally of cash. Cash is deposited with a high quality financial institution.

Oil and Gas Properties, Full Cost Method

The Company uses the full cost method of accounting for oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including certain payroll, asset retirement costs, other internal costs, and interest incurred for the purpose of finding oil and natural gas reserves, are capitalized. Internal costs that are capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred. Proceeds from the sale of oil and natural gas properties are applied to reduce the capitalized costs of oil and natural gas properties unless the sale would significantly alter the relationship between capitalized costs and proved reserves, in which case a gain or loss is recognized.

Capitalized costs associated with impaired properties and capitalized costs related to properties having proved reserves, plus the estimated future development costs, and asset retirement costs under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 410 “Asset Retirement and Environmental Obligations” (FASB ASC 410), are amortized using the unit-of-production method based on proved reserves. Capitalized costs of oil and natural gas properties, net of accumulated amortization and deferred income taxes, are limited to the total of estimated future net cash flows from proved oil and natural gas reserves, discounted at ten percent, plus the cost of unevaluated properties. The estimated future net cash flows at October 31, 2011 and July 31, 2011 were determined using a price estimate of $66 per barrel. Under certain specific conditions, companies could elect to use subsequent prices for determining the estimated future net cash flows. The use of subsequent pricing is no longer allowed. See “New Pronouncements” below for additional detail regarding the new rules. There are many factors, including global events that may influence the production, processing, marketing and price of oil and natural gas. A reduction in the valuation of oil and natural gas properties resulting from declining prices or production could adversely impact depletion rates and capitalized cost limitations. Capitalized costs associated with properties that have not been evaluated through drilling or seismic analysis, including exploration wells in progress at October 31, 2011 and July 31, 2011, are excluded from the unit-of-production amortization. Exclusions are adjusted annually based on drilling results and interpretative analysis.

Sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship is significantly altered, the corresponding gain or loss will be recognized in the consolidated statements of operations.

Costs of oil and gas properties are amortized using the units of production method. For the three months ended October 31, 2011, the Company recorded $339 in depletion expense associated with production.

Ceiling Test

In applying the full cost method, the Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the “estimated present value” of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense. During the periods ended October 31, 2011 and 2010, no impairment of oil and gas properties was recorded.

Fair Value of Financial Instruments

The fair value accounting guidance defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset. This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying value of accounts payable and accrued liabilities are considered to approximate their fair value due to their short-term nature.

Asset Retirement Obligations

The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

Revenue Recognition

The Company recognizes revenues from the sale of crude oil using the sales method of accounting. Under this method, the Company recognizes revenues when oil is delivered and title transfers.

Basic and Diluted Net Income (Loss) per Share

FASB Codification Topic 260, Earnings per share, requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the EPS computations. Basic earnings per share amounts are based on the weighted average number of shares of common stock outstanding. If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Diluted net income (loss) per share on the potential exercise of the equity-based financial instruments is not presented where anti-dilutive.

The table below shows the earnings (loss) per share, basic and diluted, for three months ended October 31, 2011 and 2010:

	For the Three Months Ended
	October 31,
	2011			2010

Net loss	$	(206,167	)	$	(605,780	)
Weighted average common shares outstanding		12,335,144			6,856,389
Earnings per share:
Basic and diluted income per share from continuing operations	$	(0.02	)	$	(0.09	)

Income Taxes

Income taxes are provided in accordance with FASB Codification Topic 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss-carry forwards.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

Recently Issued Accounting Pronouncements

We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

Reclassification of Financial Statement Accounts

Certain amounts in the October 31, 2010 condensed consolidated financial statements have been reclassified to conform to the presentation in the October 31, 2011 condensed consolidated financial statements.

Note 2 – Properties and Equipment, net

The Company’s property and equipment as of October 31, 2011 and October 31, 2010 are summarized as follows:

	October 31,			July 31,
	2011			2011

Well operating equipment	$	138,300		$	138,300
Less: accumulated depreciation		(30,056	)		(24,737	)

Property and equipment, net	$	108,244		$	113,563

Depreciation expense for the three months ended October 31, 2011 and 2010 was $4,980 and $4,939, respectively.

Note 3 – Related Party Transactions

During the three months ended October 31, 2011, the Company borrowed $56,218 from related parties. The additional borrowings were made up of $50,660 in cash, and $5,558 of Company expenses which were paid on behalf of the Company by related parties. The notes payable are unsecured, bear no interest, and are due on demand. Due the same period, the Company made $49,018 of cash payments against all outstanding notes payable due to related parties. The Company owed $66,700 and $59,500 to related parties at October 31, 2011 and July 31, 2011, respectively.

Note 4 – Stockholders’ Deficit

Common Stock

During the three months ended October 31, 2011, the Company issued 1,840,000 shares of common stock for services valued at $120,800 in the aggregate.

Note 5 – Contingencies, Environmental and Other

The Company’s operations and earnings may be affected by various forms of governmental action in the United States. Examples of such governmental action include, but are by no means limited to: tax increases and retroactive tax claims; royalty and revenue sharing increases; import and export controls; price controls; currency controls; allocation of supplies of crude oil and petroleum products and other goods; expropriation of property; restrictions and preferences affecting the issuance of oil and gas or mineral leases; restrictions on drilling and/or production; laws and regulations intended for the promotion of safety and the protection and/or remediation of the environment; governmental support for other forms of energy; and laws and regulations affecting the Company’s relationships with employees, suppliers, customers, stockholders and others. Because governmental actions are often motivated by political considerations and may be taken without full consideration of their consequences, and may be taken in response to actions of other governments, it is not practical to attempt to predict the likelihood of such actions, the form the actions may take or the effect such actions may have on the Company.

Companies in the oil and gas industry are subject to numerous federal, state, local and regulations dealing with the environment. Violation of federal or state environmental laws, regulations and permits can result in the imposition of significant civil and criminal penalties, injunctions and construction bans or delays. A discharge of hazardous substances into the environment could, to the extent such event is not insured, subject the Company to substantial expense, including both the cost to comply with applicable regulations and claims by neighboring landowners and other third parties for any personal injury and property damage that might result.

The Company currently leases properties at which hazardous substances could have been or are being handled. In addition, many of these properties have been operated by third parties whose treatment and disposal or release of hydrocarbons or other wastes were not under the Company’s control. Under existing laws the Company could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to clean up contaminated property (including contaminated groundwater) or to perform remedial plugging operations to prevent future contamination. The Company is investigating the extent of any such liability and the availability of applicable defenses and believes costs related to these sites will not have a material adverse affect on the Company’s net income, financial condition or liquidity in a future period.

The Company’s liability for remedial obligations includes certain amounts that are based on anticipated regulatory approval for proposed remediation of former refinery waste sites. Although regulatory authorities may require more costly alternatives than the proposed processes, the cost of such potential alternative processes is not expected to be a material amount. Certain environmental expenditures are likely to be recovered by the Company from other sources, primarily environmental funds maintained by certain states. Since no assurance can be given that future recoveries from other sources will occur, the Company has not recorded a benefit for likely recoveries.

There is the possibility that environmental expenditures could be required at currently unidentified sites, and new or revised regulations could require additional expenditures at known sites. However, based on information currently available to the Company, the amount of future remediation costs incurred at known or currently unidentified sites is not expected to have a material adverse effect on the Company’s future net income, cash flows or liquidity. The Company has recorded $33,700 and $32,830 for its estimated asset retirement obligation as of October 31, 2011 and 2010, respectively.

Note 6 – Contingent Liabilities

On May 23, 2011, the Company received a complaint from Oscar Luppi, former Chairman, President, Chief Executive Officer, and Treasurer of the Company. The complaint seeks contractual damages in the amount of $1,142,739, or alternatively the fair value of services of plaintiff of $413,973, or greater, plus interest. The principal causes of action are breach of contract; and, common count for services rendered arising out of claims for allegedly unpaid wages and future wages. As of July 31, 2011, the Company has accrued $435,947 related to Mr. Luppi’s service to the Company which is recorded as accrued officers salaries on the accompanying balance sheet.

Note 7 – Oil and Gas Properties

Oil and gas properties are stated at cost. The Company recognized $339 in depletion during the three months ended October 31, 2011. The Company did not recognize any depletion during the three months ended October 31, 2010. Gains and losses on sales and disposals are included in the statements of operations. As of October 31, 2011 and July 31, 2011, oil and gas properties consisted of the following:

	October 31,			July 31,
	2011			2011
Producing Activities
Proved properties	$	909,671		$	909,671
Accumulated depletion		(339	)		-

Net Oil and Gas Properties	$	909,332		$	909,671

Capitalized Costs for Oil and Gas:

	October 31,			July 31,
	2011			2011
Costs Incurred in Oil and Gas Acquisition and Development Activities
Produced properties	$	909,671		$	909,671
Accumulated depletion		(339	)		-

Total	$	909,332		$	909,671

Note 8 – Supplemental Cash Flow Information

Non-cash investing and financing activities for the year ended July 31, 2011 included the following:

	For the Three Months Ended
	October 31,
	2011		2010
Cash paid for:
Interest	$	-	$	-
Income taxes	$	-	$	-

Non cash financing activities:
Issuance of common stock for prepaid expenses	$	-	$	100,000

Note 9 – Subsequent Events

On December 14, 2011, the Company filed a Form S-8 Registration Statement to register 3,000,000 shares of common stock under the Company’s 2011 Stock Incentive Plan.

In accordance with ASC 855, Company management has reviewed all material events through the date of this report and there are no additional subsequent events to report other than those events listed above.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Disclosure

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of Force Fuels, Inc. that are based on current expectations, estimates, forecasts, and projections as well as the beliefs and assumptions of Force Fuels, Inc.’s management. Words such as “outlook,” “believes,” “expects,” “appears,” “may,” “will,” “should,” “anticipates” or the negative or correlations thereof or comparable terminology are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update publicly any forward-looking statements.

General

The following is management’s discussion and analysis of certain significant factors affecting our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements.

Overview

The following is a discussion of the financial condition of the Company as of October 31, 2011, and results of operations of the Company as of and for the period ended October 31, 2011. This discussion should be read in conjunction with the Financial Statements of the Company and the related notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 15, 2011.

Description of the Company

Critical Accounting Policies, Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

Results of Operations

Comparison of the Three Months Ended October 31, 2011 to the Three Months Ended October 31, 2010

Revenues

The Company produced $7,032 in revenue for the three months ended October 31, 2011.

The Company sold $32,849 in oil inventory during the three months ended October 31, 2010. During the same period, the Company recorded $42,579 in cost of goods related to this oil inventory resulting in a gross loss of $9,730 for the three months ended October 31, 2010.

Operating Expenses

Our total operating expenses for the three months ended October 31, 2011 decreased $101,197 or approximately 33% to $207,614 from $308,811 for the three months ended October 31, 2010. This decrease is primarily attributable to the reduction in general and administrative expenses of $89,748 to $97,898 for the three months ended October 31, 2011 from $187,646 for the three months ended October 31, 2010, a reduction in the lease operating expenses of $15,078 to $316 for the three months ended October 31, 2011 from $15,394 for the three months ended October 31, 2010.

Our total operating expenses for the three months ended October 31, 2011 of $207,614 consisted of lease operating expenses of $316, salary and wages – officers of $103,212, general and administrative expenses of $97,898, and depletion, depreciation, amortization, and accretion expense of $6,188.

Our total operating expenses for the three months ended October 31, 2010 of $308,811 consisted of lease operating expenses of $15,394, salary and wages – officers of $100,832, general and administrative expenses of $187,646, and depletion, depreciation, amortization, and accretion expense of $4,939.

Net Loss

We had a net loss of $206,167 for the three months ended October 31, 2011. This loss is primarily attributable to the revenue of $7,032 offset by expenses of $207,614.

We had a net loss of $605,780 for the three months ended October 31, 2010. This loss is primarily attributable to the gross loss of $9,730, total expenses of $308,811, and other expenses consisting of $225,000 loss on settlement of debt and interest expense of $62,239.

Liquidity and Capital Resources

As of October 31, 2011, we had a working capital deficit of $1,354,945 consisting of liabilities of $1,389,552 and current assets of $34,607. As of October 31, 2011, we had $6,392 in cash. Our accumulated deficit of $4,007,969 as of October 31, 2011 was mainly funded by a combination of prior debt and equity financing by way of private placements of our common stock.

Net cash provided by operating activities was $2,125 for the three months ended October 31, 2011 compared to net cash used in operating activities of $48,479 for the three months ended October 31, 2010. For the three months ended October 31, 2011, net cash provided by operating activities consisted primarily of a net loss of $206,167, offset by non-cash expenses of $6,188 related to depletion, depreciation, amortization, and accretion, expenses paid on behalf of the Company by a related party of $5,558, and common stock issued for services and loan inducement of $120,800. Additionally, changes in operating assets and liabilities impacted the net cash provided by operating activities. These changes included an increase in accounts receivable of $2,009, an increase in deposits and prepaid expenses of $19,617, an increase in accounts payable and accrued expenses of $28,644, and an increase in accrued salaries of $68,728.

For the three months ended October 31, 2010, net cash used in operating activities consisted primarily of a net loss of $605,780, offset by non-cash expenses of $4,939 related to depletion, depreciation, amortization, and accretion, loss on settlement of debt of $225,000, amortization of discount on debt of $50,728, and common stock issued for services and loan inducement of $225,183. Additionally, changes in operating assets and liabilities impacted the net cash provided by operating activities. These changes included a decrease in accounts receivable of $7,451, a decrease in inventory of $42,579, an increase in deposits and prepaid expenses of $77,616, a decrease in accounts payable and accrued expenses of $24,056, and an increase in accrued salaries of $103,093.

There was no net cash provided by or used in financing activities or investing activities in the three months ended August 31, 2010 or 2009.

Obtaining any additional financing will be subject to a number of factors, including market conditions, investor acceptance of our business plan and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. There can be no assurance that financing will be available to us on favorable terms or at all. If we are unable to obtain additional financing, we may be unable to continue operations.

Off Balance Sheet Transactions

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of the period covered by this Report. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of October 31, 2011.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”) and includes those policies and procedures that:

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions;

provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements;

provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and

provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including its principal executive officer and principal financial officer, the Company’s management assessed the design and operating effectiveness of internal control over financial reporting as of October 31, 2011based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, management concluded that the Company’s internal control over financial reporting was not effective as of October 31, 2011.

In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at October 31, 2011:

Policies and Procedures for the Financial Close and Reporting Process — Currently there are no policies or procedures that clearly define the roles in the financial close and reporting process. The various roles and responsibilities related to this process should be defined, documented, updated and communicated. Failure to have such policies and procedures in place amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

Adequacy of Accounting Systems at Meeting Company Needs — The accounting system in place at the time of the assessment lacks the ability to provide high quality financial statements from within the system, and there were no procedures in place or built into the system to ensure that all relevant information is secure, identified, captured, processed, and reported within the accounting system. Failure to have an adequate accounting system with procedures to ensure the information is secure and accurately recorded and reported amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

Segregation of Duties — The Certifying Officer has identified a significant general lack of definition and segregation of duties throughout the financial reporting processes. Due to the pervasive nature of this issue, the lack of adequate definition and segregation of duties amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

In light of the foregoing, once we have the adequate funds, management plans to develop the following additional procedures to help address these material weaknesses:

The Company will create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to review by other members of management as well as the Company’s outside accountant. In addition, we plan to enhance and test our month-end and year-end financial close process. Additionally, our board of directors will increase its review of our disclosure controls and procedures. We also intend to develop and implement policies and procedures for the financial close and reporting process, such as identifying the roles, responsibilities, methodologies, and review/approval process. We believe these actions will remediate the material weaknesses by focusing additional attention and resources in our internal accounting functions. However, the material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Quarterly Report.

Changes in Internal Control over Financial Reporting

During the three months ended October 31, 2011, the Company hired a Chief Financial Officer to maintain the Company’s accounting processes and procedures.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

As of October 31, 2011, other than the proceedings described below, we knew of no material pending legal proceedings to which the Company was a party or of which its property was the subject.

On May 23, 2011, the Company received a complaint from Oscar Luppi, former Chairman, President, Chief Executive Officer, and Treasurer of the Company. The complaint seeks contractual damages in the amount of $1,142,739, or alternatively the fair value of services of plaintiff of $413,973, or greater, plus interest. The principal causes of action are breach of contract; and, common count for services rendered arising out of claims for allegedly unpaid wages and future wages. As of October 31, 2011, the Company has accrued $435,947 related to Mr. Luppi’s service to the Company which is recorded as accrued officer’s salaries on the accompanying balance sheet.

Our management is not aware of any legal proceedings contemplated by any governmental authority against us.

Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Subsequent Events

On December 14, 2011, the Company filed a Form S-8 Registration Statement to register 3,000,000 shares of common stock under the Company’s 2011 Stock Incentive Plan.

Item 3. Defaults upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FORCE FUELS, INC.
	(Registrant)



December 20, 2011	By /s/ Thomas Hemingway
	Thomas Hemingway
	Chief Executive Officer



December 20, 2011	By /s/ Charles B. Mathews
	Charles B. Mathews
	Chief Financial Officer

Exhibit Index

The following exhibits are filed herewith or incorporated herein pursuant to Regulation S-K, Item 601:

Exhibit

31.1*		Certifications Pursuant to 18 U.S.C. Section 1350-Section 302, signed by Thomas Hemingway, Chief Executive Officer.

31.2*		Certifications Pursuant to 18 U.S.C. Section 1350-Section 302, signed by Charles B. Mathews, Chief Financial Officer.

32*		Certification Pursuant to 18 U.S.C. Section 1350-Section 906, signed by Thomas Hemingway, Chief Executive Officer and Charles B. Mathews, Chief Financial Officer.

101**		Interactive Data Files pursuant to Rule 405 of Regulation S-7

* Filed herewith.
** To be filed by Amendment

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